Tuesday, February 1, 2011

Before we get to the economic figures overnight, futures have us set up for the traditional first day of the month rally. This has now reached a point bears will not make bets against the market on the last day of the month because it has become ingrained that we'll surge on the first day of the following month, (with a lot of the move happening in premarket of course). The last first day of the month that has been down was back in July 2010 (a whopping 0.3% loss). Since then the market has added 8.7% in the six first day of the months since, for an average gain of 1.45%. Going father in time we see a similar pattern, as I've mentioned often. e Barring a disaster in U.S. Manufacturing ISM at 10 AM, we are guaranteed to see yet another positive to the data set, as intraday reversals (barring riots in foreign lands) have gone the way of the dodo bird in the HFT dominated market - once a market is in motion, HAL9000 almost never reverses it.

With the S&P 500 back over 1280, the bears have had their 1 day of candy stomped on, as the "first day of the week" rally followed by the "first day of the month" rally back to back, simply is a force too difficult to fight. Hence my caution late last week on making bets against the broader market despite the first break of support in months.

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As for the economic data, I think U.S. bulls had a "no lose" situation in China - if the Chinese Purchasing Managers Index was strong we would clap that "China is impossible to stop" and if the PMI was weak, we would clap that "China is doing a great job slowing down their economy to contain inflation". It's a David Tepper viewpoint - we can't lose no matter what the data. As always, there are actually 2 figures one private (via HSBC) and one public (via the ministry of propaganda government). Since there is actually a private survey, this is the one report from the land of perpetual 10% growth with "little" inflation, that I pay some heed to. Inflation continues to be an issue even though the government insists it is contained, and indeed now dropping.

With the Chinese New Year starting up soon, the data next month will be not as useful.

China's manufacturing boom eased further in January as authorities tightened controls on credit, though inflationary pressures continued to rise, according to data released Tuesday. The state-affiliated China Federation of Logistics and Purchasing said its purchasing managers index, or PMI, dipped to 52.9 last month, from 53.9 in December and 55.2 in November.

A second, competing survey issued Tuesday, the HSBC China Manufacturing Purchasing Managers Index, edged up in January to 54.5 from a three-month low of 54.4 in December.

The HSBC survey covers 400 companies, while the federation's monthly reports measure data from 820 companies across a range of industries and is an indicator of future trends.

Here is where the fun starts - the government indicates its inflation fighting measures are doing a great job slowing down the economy. HSBC survey? Not so much.

The government-sponsored survey showed steady demand for imports and strong purchasing by manufacturers. But indicators for new export orders, production and inventories fell, it said, suggesting caution among many manufacturers over prospects for future demand.

The HSBC survey appeared, however, to show more robust support for continued strong growth, suggesting further room for credit tightening.

Goldman Sachs Group Inc. said the divergence between the studies may reflect sampling differences and said the government-backed PMI shows seasonal effects even after “supposed” seasonal adjustment. (note the quotation marks around supposed - i.e. even Goldman is chuckling at the government data) Barclays Capital said the HSBC PMI was “a more reliable seasonally adjusted series.”

M2 (broad measure of money growth) continues to explode in China, with a 19.7% gain 2010, and the government aiming for another 16% in 2011. But with little inflation of course. Ahem.

European manufacturing growth was stronger than initially estimated in January, accelerating to the fastest pace in nine months on stronger output in Germany. A gauge of manufacturing in the euro region rose to 57.3 from 57.1 in December, London-based Markit Economics said. That’s the highest since April. In Germany, output growth hit 60.5.

A gauge of services advanced to 55.2 in January from 54.2 in December. A composite index of manufacturing and services rose to 56.3 from 55.5. A sub-indicator of new orders remained at the highest in eight months, today’s report showed.

European manufacturers have helped bolster the region’s economic expansion as export growth countered the impact of austerity measures on consumer demand.

In Germany, Europe's largest economy, business confidence jumped to a record last month.

German unemployment has fallen to second lowest among the Group of Seven nations after Japan. According to OECD data, Germany’s jobless rate was 6.7 percent in November. The equivalent rate in France was 9.8 percent, the U.S. rate was 9.8 percent and the Group of Seven average was 8.2 percent.

Instead of Jeffrey Immelt (how many jobs has GE sent overseas the past few decades, while simultaneously taking massive amounts of government subsidies?) perhaps Obama should have hired away a top official from Germany to learn how to create a favorable environment for job creation in Cramerica.

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